'The problem is that Putin is both a product and beneficiary of a thuggish regime'. Photograph: Mladen Antonov/AFP/Getty Images

Apart from the small matter of the football, that a Spanish prosecutor has told an American diplomat that Russia is a "mafia state" has made headlines today. With and without reason. Not a single Russian newspaper, not even those that are chummy with the Kremlin, has failed to use such terminology over the past two decades. Before the fall of the USSR few Russians knew what the mafia was. Now the Sicilian name has entered all the Cyrillic lexicons – and always the core meaning is entanglement of politicians and criminals to cream off the country's assets by whatever means are necessary.

In the old Soviet Union, public theft was possible through a corrupt political system without need for out-and-out hoodlums. Private dachas were constructed at public expense. Factory profits were siphoned off into the bank accounts of the nomenklatura. Elderly party bigwigs took their pick of foreign merchandise in special shops banned to ordinary citizens.

De-communisation changed all that. Privatisation led to a vicious scramble for the country's abundant natural resources, and strikingly imaginative schemes were dreamt up by the "new Russians". Some of them – the oligarchs – became billionaires, and they made themselves useful to President Yeltsin at times of economic crisis and in election campaigns. In return they exacted a price. Yeltsin had to promise to make it possible for them to lay their hands on ever larger quantities of resources. The greedy competition fostered enmities. Many oligarchs, having fought their way up to wealth and fame, were keen to keep their money by illegal and violent methods.

When Putin came to power he acquired the image of a ruler who would cleanse the filthy stables. He stood for order. He denounced corruption and privilege. And although he never turned the clock back on the privatisation programme, he arrested or intimidated those oligarchs who failed to acknowledge his primacy. Mikhail Khodorkovsky objected. He is now in prison in eastern Siberia. Boris Berezovsky wailed and criticised before fleeing to political asylum in London.

To the fore came men like Putin. He drew on ex-comrades from the KGB. He praised them for their patriotism, honesty and dynamism. All too quickly the assets seized from the dissident oligarchs ended up in the pockets of the newcomers from the security and defence establishment. Everybody in Russia knows this. It was certainly no secret from Putin during two presidential terms when he called repeatedly for the installation of the rule of law. His protege and successor, Dmitry Medvedev, has been even more expansive about the need for reform and legality.

Both men appreciate something in theory. This is that Russia, if it is to have a competitive future in the world alongside its Chinese neighbour, has to build a framework where thrusting entrepreneurs can drive home from the office without fear of a hail of bullets. And they know that foreign investment will be enhanced by introducing an enforceable system of business contract legislation.

The problem is that Putin and Medvedev – Mr Alpha Dog and his poodle – are products and beneficiaries of a thuggish regime. They themselves are thugs. Alpha Dog growls while the poodles simpers; but each has got a sharp bite. They are like 18th-century monarchs contemplating a set of reforms. If they go too far too fast, an aristocratic clique may well remove them in a coup. In today's Russia the current badge of nobility is the old KGB identity paper. They are jailers of the regime but they are also its inmates.

Much that happens in Moscow is their responsibility and they deserve the opprobrium heaped upon them by a plain-speaking Spanish prosecutor. But how much faith should be placed in the US ambassador's contention that Putin knew about the operation to assassinate Alexander Litvinenko in London? This is much less credible. Putin is the big man at the centre of a system in which many operate – and diplomatic cables that caricature the internal reality of Russian politics are not going to clarify analysis in the way that is needed in our complex world of rapid change.

The man from Spain said nothing unusual in itself. What is remarkable is that such remarks have at last surfaced in the public domain. Putin has been quick to claim that there's a plot against Russia. There is indeed a plot against Russia, and it is one he knows a lot about from the inside.